ELLIOTT WAVE ANALYSIS - Latest Market Commentary
28th November 2015 - U.S. and European stock markets inch slowly higher following last week’s U.S. Thanksgiving holiday amidst quiet and low volume trading. With next week’s European Central Bank meeting on the agenda, and with Mario Draghi expected to expand his monetary easing policies, we expect European stock markets to ###hold their ground and continue their advance throughout the coming week. The S&P and Dow Jones (DJIA) are heading towards new record highs into year-end although European indices, currently outperforming in percentage terms since the September lows, are expected to reattempt but not break the April highs. It is possible for them to extend above if indices like the Eurostoxx 50 and Xetra Dax transform existing three wave advances into a five wave sequences – but this will become obvious during the next week. The S&P’s advance from the August low maintains the five wave ending diagonal pattern with ultimate targets towards 2180.06+/-. This latest report includes updates for the Dow Jones (DJIA) and Nasdaq 100. In Asia, stock markets took an overnight hit with the Shanghai Composite down by -5.5% per cent. Other regional markets followed lower as a result of regulatory investigations into alleged mis-trading by some of the largest stockbrokers in the country. Our latest analysis of the Shanghai Composite suggests the next phase of declines that began from last July have now begun. India’s Nifty 50 is tracking the momentum of the S&P and is heading higher to extend its original zig zag upswing from August into a double pattern. Japan’s Nikkei has traded into original upside targets to complete a counter-trend correction from the August low although this could extend a little further to synchronise with the S&P 500.
28th November 2015 - Last week, we changed both the US$’s and Euro’s outlook for the next several weeks. Continued strength in the US$ suggests the overlapping and corrective upward sequence we have witnessed lately is part of an ending expanding-diagonal pattern that will eventually stretch higher before a more ###pronounced sell-off can get underway. This sell-off that should pull prices lower by January however is likely to be followed by one additional and concluding upswing towards ultimate upside at 102.03-20 to finalise the entire upswing from the Aug.’15 low of 92.62. Vice versa, the Euro is heading lower during the next few weeks only to stage a subsequent counter-trend advance, followed by a finalising deep sell-off into lower lows afterwards. Ultimate downside in the Euro’s case is measured towards 1.0146+/-. Meanwhile Sterling has drifted lower and thus confirmed the mid-November high of 1.5337 as the completion of a 2nd wave within the ongoing five wave ending contracting-diagonal sequence. Declines as the 3rd wave are poised for continuation lower in the weeks ahead before a 4th wave counter-trend rally will attempt the 1.5026+/- area (an ‘overlap’ is obligatory in a diagonal pattern). Ultimate downside objectives to be approached in early-2016 remain unchanged and are listed in our report. After synchronising the US$/Yen’s movement with the renewed outlook for the US$, the former currency pair is seen in an ending contracting-diagonal pattern that should help push prices higher into new highs. In this latest report, we have included sub-structural fib-price-ratio measurements to pin down the idealised conclusion for the diagonal’s 3rd wave currently in progress.
Bonds (Interest Rates)
28th November 2015 - The Federal Reserve’s December meeting is still a couple of weeks away, scheduled for December 15-16 but the immediate future focuses on next week’s European Central Bank (ECB) meeting. President Mario Draghi is expected to announce an extended plan for his current monetary ###easing and bond-purchasing programme. So far, this is widening the 10/10-spread and flattening the U.S. curve. Meanwhile, the US10yr yield continues to edge lower into a counter-trend 4th wave correction from the November high. Downside targets are not far away anymore and once completed, will unleash a surging 5th wave advance with targets reattempting the June highs towards 2.500+/-. In Europe, our benchmark DE10yr yield continues its decline from the June high as a counter-trend 2nd wave correction. Whether this is unfolding into a single or double zig zag is irrelevant in this specific case as fib-price-ratio measurements for each pattern converge down at 0.170+/-. This is still 27bps away which implies additional widening on the spread until completed.
28th November 2015 - Friday’s U.S. trading activity resumed following the Thanksgiving holiday on Thursday but volumes were thin in just about every asset class, including precious metals as market-makers took the opportunity to extend festivities until next week. A slightly higher US$ dollar during the day led to weaker commodity### prices although base metals held above the lows recorded earlier in the week. But gold was unable to hold, instead declining to a new 5-year low to 1052.85. This was not a surprise though as our Elliott Wave analysis has expected this downside attempt. Contrastingly, silver held above Monday’s low of 13.91 in an impressive defiance of golds more bearish sentiment. Silver traded down to a Friday low of 13.96 but closed higher at 14.15. Whilst gold attempts ultimate downside targets at 1052.11-51.72+/-, we note that Asian gold demand, especially data reporting from the Shanghai Gold Exchange is at an ALL-TIME-HIGH! Deliveries of physical metal ending Nov. 20th were at 54 tonnes which totals 2,313 tonnes for the entire year. This is equivalent to about 80% per cent of current global new mined production. By contrast, investors of paper gold liquidated another US$1bn dollars from trading funds. This was the largest outflow in 17 weeks. And by comparison, some of the funds generated by these sales are being transferred into money market funds – according to BAML, inflows are the largest in eight weeks bringing an accumulated total to a huge US$12bn dollars. Crude oil remains above the previous week’s reversal low of 40.06/38.99 that ended its counter-trend decline from the October highs. So far, the following advance is too modest to confirm a more bullish accelerative advance but next week’s OPEC meeting may trigger such an event.